Australia’s housing finance market continues to regain momentum after an adjustment following the sharp rise in interest rates through 2022–2023. The September quarter 2025 data from the Australian Bureau of Statistics Lending Indicators confirm a further lift in new loan commitments, signalling that the gradual easing in borrowing costs, undersupply of dwellings, and stabilisation in prices continues to provide support for housing demand.
In seasonally adjusted terms, total new loan commitments increased over the quarter, and in original terms were up 5.9% on the same period a year earlier. While volumes remain below the record highs of 2021, lending activity is now around 17% higher than the trough recorded in the year to September 2023; a strong recovery given the still-elevated interest rate environment.
Investor Activity Leading the Recovery
The key story within the current lending cycle is the resurgence of investor activity. In the year to September 2025, investor loans were 32% above their previous 12.month low, compared with 7% and 9% increases above their prior trough for First Home Buyers and Next Time Buyers respectively. Investors in the year to September 2025 accounted for 39% of all new loans, up from a low of 23% in early 2021 and are now on par with the share of Next Time Buyer loans. This shift emphasises the clear re-engagement of investors after several years on the sidelines.
Investor participation has been driven by rapidly rising rents, a chronic undersupply of dwellings, and improving yields relative to alternative asset classes. Fixed-interest returns have softened, equity markets remain volatile, and the rent-to-repayment ratio has steadily shifted toward investors. The presence of price growth despite the higher interest rate environment has reinforced the view that property will outperform over the medium term, particularly in light of the expectation that interest rates are likely to edge lower.
First Home Buyers Stable considering . . .
By contrast, First Home Buyer (FHB) activity has been relatively stable, down 0.9% on a year earlier, reflecting the enduring challenge of affordability. Rising mortgage rates, high entry price points, and limited savings buffers have all acted as headwinds. However, FHB activity remains above pre-COVID levels across most stated, driven by the demographic undercurrents driving demand. The Millennial population bulges is now progressively entering family-forming age brackets and continue to expand the potential FHB pool.
Furthermore, the expansion of the Federal Government’s Home Guarantee Scheme from 1 October has the potential to increase demand from this segment, which would be further boosted by additional rate cuts from the RBA.
Next Time Buyers and Market Liquidity
The Next Time Buyer segment (mainly comprising upgraders and downsizers) recorded modest year-on-year growth of 2.9% in the September quarter. Demand remains below pre-COVID levels but has stabilised, with activity improving as transaction volumes recover. For upgraders, housing equity built up over the last cycle remains a crucial enabler, while for downsizers, the easing of price declines and policy adjustments around retirement housing are helping rebuild confidence.
Importantly, First Home Buyer activity provides a pipeline for Next Time Buyer transactions by supporting entry-level demand for existing owners to move up the ladder. This upward progression will be key to sustaining transaction volumes.
Investors have been gravitating to new housing
Interestingly, the latest figures show investors are diversifying their focus. Apartments have historically dominated investor portfolios. However, the number of investor loans for land and new dwellings have nearly doubled since 2020, and investors now make up 44% of all loans for new housing construction.
The increased appeal of the greenfield market to investors reflects concerns around high-rise construction quality and the elevated prices of off-the-plan apartments, both consequences of the post-COVID surge in building costs. This shift will have downstream implications, increasing supply in outer-suburban rental markets.
State and Territory Trends
New South Wales & Victoria
The east coast markets remain constrained by affordability but are showing early signs of recovery. In NSW, investor activity is rising steadily as yields improve and prices appear to be regaining momentum. Victoria, which faced headwinds from new land taxes and tighter tenancy regulation, recorded a strong 27% year-on-year rise in investor loans in the September quarter. Investors appear to be following media commentary and seeking value in a market that had underperformed for several years.
Queensland, South Australia & Western Australia
Queensland continues to show solid but moderating demand after several years of interstate migration-fuelled growth, although affordability pressures are now emerging. South Australia, having benefited from its relative affordability, is also seeing early signs of cooling as prices and borrowing costs rise.
Western Australia remains an outlier. Investor and Next Time Buyer activity surged through 2023/24, reflecting the state’s strong economy and population inflows, but the latest data suggests that the boom phase is fading. The recovery in Perth prices after a long period of post-mining boom stagnation has unlocked pent-up upgrader demand, but there are signs that activity is topping out and investors are starting to turn their attention away from the state.
Tasmania, Australian Capital Territory & Northern Territory
In the Australian Capital Territory , First Home Buyer loans have ticked higher after a period of stagnation. Meanwhile in Tasmania and the Northern Territory (both not shown), all purchaser segments are seeing uplifts in demand, particularly investors looking to capitalise on an anticipated resource-driven uplift in prices in Northern Territory.
Outlook
Purchaser activity is likely to trend upwards nationally into 2026, supported by strong population growth and an undersupply of dwellings. Likely cuts to interest rates in 2026 will further facilitate demand.
First Home Buyer demand is expected to continue to be challenged by affordability constraints, but the recent cuts to interest rates (notwithstanding further potential cuts in 2026), together with the expansion of the Federal Government’s Home Guarantee Scheme, should create some momentum, which in turn provides a market for Next Time Buyers to sell into and consequently support growth in Next Time Buyer Demand.
The increased presence of Investors is also likely to be sustained. The rent vs mortgage equation has improved and should continue to improve on the back of rising rents (albeit at a slowing rate). Lower fixed-interest returns and volatility in the equities market may also see more investors seek the refuge of residential investment. At this stage the focus of investors in the new housing market has been in the greenfields, but there is potential for this to move into the off-the-plan market if prices rise through the year and developers are able to deliver new apartment product at more affordable price points.
Upside potential in purchaser activity appears greatest in New South Wales and Victoria, with these markets having been more muted since interest rates started rising in 2022. Meanwhile, there are signs that affordability challenges in Queensland, South Australia and Western Australia are now emerging and impacting purchaser demand. Persistent undersupply should provide more support to demand in these markets, although the upside is likely to be more moderate.
For further insight into housing market activity and what it means for your business, contact Angie Zigomanis at [email protected] or Rob Burgess at [email protected]
